Source: Savills Research
Q1 Transactions muted but strong and diverse demand still the theme for 2015.
Market comment and notable deals
■ March saw volumes of £430 million over 12 transactions, bringing Q1 2015 to £963 million over 27 transactions. After a busy January, transactional volumes slowed leading to the lowest quarterly turnover and number of recorded transactions since Q2 and Q1 2009 respectively (Graph 1).
However, this was still broadly consistent with the Q1 average over the last 10 years. With almost £2 billion currently under offer we forecast Q2 transaction volumes will significantly exceed those achieved over the first three months of the year.
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GRAPH 1Quarterly transaction figures
■ In the largest deal of the month Threadneedle acquired One Neathouse Place, a mixed office and retail investment, for £100.5 million reflecting a 5% net initial yield and a capital value of £856 per sq ft. The offices are single let to BHP Billiton Petroleum until June 2017 at a rent reflecting £51.45 per sq ft. The office tenant is rumoured to be vacating the property at lease expiry.
■ A private Hong Kong investor has purchased 175-179 Oxford Street for £58 million reflecting a capital value of £2,733 per sq ft. The property is let to five tenants at a passing rent of £1.49 million per annum. The retail element is currently passing off £433 ZA and is subject to an outstanding review from March 2015. This reflects an approximate initial yield on the retail of 2% assuming 3.75% on the offices. On settlement of the outstanding review we estimate a retail equivalent yield of 2.75%.
■ Further to our comment in the March edition concerning the uptick of Kensington High Street transactions, DTZIM has purchased 129-137 & 151-161 Kensington High Street for £55.4 million reflecting a 4.04% net initial yield and a capital value of £1,540 per sq ft. The property consists of a retail parade of 11 units and 19 residential flats totalling 35,981 sq ft.
■ A lack of openly marketed product combined with a continuing appetite for central London property has lead to the continuation of record prices being achieved for all commercial asset classes within the West End. With under £100 million of stock entering the open market during March the current supply demand imbalance shows no sign of abatement. Investors looking to capitalise on current pricing, by selling, continue to be UK Investors who were considerably the largest vendor nationality of stock traded in Q1 (Graph 2).
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GRAPH 2Vendor nationality profile - Q1 2015
Source: Savills Research
■ Savills prime hypothetical West End yield remains at 3.25% with the IPD average equivalent yields currently standing at 4.79% (Feb 2015), down from 5.19% 12 months ago. Considering current investor demand we expect IPD yields to continue to be squeezed further over the next three months.
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GRAPH 3West End yields
Source: Savills Research
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TABLE 1Key deals in March 2015